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Acceptable Business Deductions

Acceptable Business Deductions

What are acceptable business deductions and what things do not qualify? Generally, if an expense is used for the purpose of running the business, then it is a business expense. Here are some more specifics on some questions you may have such as: Can I deduct my home office? How much of meals and entertainment expense can I deduct? Can I deduct my travel cost to work? In what cases can I deduct dry cleaning?

Employees

Includes expenses for your job for which you weren’t reimbursed, but you only get the amount in excess of 2% of your AGI (adjusted gross income), and only if you can itemize. For instance, if your AGI is $100,000, you must have at least $2,000 in employee business expenses before you will begin to benefit from the deduction.

Dues and Fees

Dues to chambers of commerce and similar organizations if the membership helps you carry out your job duties (see exceptions).

Licenses paid to state or local governments

Education and Research

Educational expenses related to your present work that maintains or improves your skills.

Research expenses

Equipment and Supplies

Business use of computer. Employees: Must be for the convenience of your employer and required as a condition of your employment.

Supplies and tools you use in your work.

Home Office

Expenses for an office in your home IF part of the home is used regularly and exclusively for your work. Employees: the use of your home office must also be for the convenience of your employer.

For more information, see IRS Publication 587.

Internet

Employees: Must be for the convenience of your employer and required as a condition of your employment.

Job hunting expenses (Employees)

To deduct job hunting expenses, you must be looking for a job in your present line of work (i.e., you’re not changing professions or looking for your first job). Expenses include:

Resume preparation (drafting, typing, printing, mailing, faxing).

Employment agency fees.

Executive recruiters’ fees.

Portfolio preparation costs.

Career counseling to assist you in improving your position.

Legal and accounting fees you pay in connection with employment contract negotiations and preparation.

Advertising.

Transportation costs to job interviews.

Long distance calls to prospective employers.

Newspapers you purchase to read the employment ads.

Other business publications you purchase to read the employment ads.

Half of your meals you pay for that are directly related to your job search.

If you take a trip away from home to look for a new job, your expenses for traveling, lodging, meals (50% of the cost), etc. are deductible only if the primary purpose of your trip is to look for a job. To substantiate the purpose of your trip, keep a daily log of your interviews, application efforts, etc.

Meals and Entertainment

Meals and entertaining costs with a clear business purpose (i.e. Meeting with clients. Only 50% of the cost is deductible). Keep a record of the date, place, amount of expenses, people present, business purpose, and business discussed. Also keep receipts for expenses in excess of $75.

For more information, see IRS Publication 463

Telephone Charges

Business use of cellular phone.

Cost of long-distance business calls charged to home phone.

Separate business telephone (home phone line is not deductible).

Travel and Transportation

Traveling costs incurred while away from home on business.

Traveling costs paid in connection with a temporary work assignment.

Transportation between your home and a temporary work location if you have no regular place of work but you ordinarily work in the metropolitan area where you live and the temporary work location is outside that area.

Transportation between your home and a temporary work location if you have at least one regular workplace for this employment. It doesn’t matter how far away the temporary location is in this case.

Transportation from one job to another if you work two places in one day.

If you are self-employed and your home is your principal place of business, all business travel is deductible.

Occupational taxes if they’re charged at a flat rate by your city or other local government for the privilege of working in that area.

Business liability insurance premiums.

Job dismissal insurance premiums.

Damages you pay to a former employer for a breach of employment contract.

Employee contributions to state disability funds

Self-Employed Only

Interest on business loans

Self-Employed health insurance (partial)

Commissions and fees

Business insurance

Keogh or SEP contributions

Rental of business property

Office rent and utilities

Repairs and maintenance

Business taxes and licenses

People commonly hope to deduct some of the following expenses, but unfortunately they are not deductible.

Non-Deductible Expenses

Expenses that were reimbursed by your employer.

Apartment rent, unless qualified to claim away from home expenses for a business trip expected to last one year or less (Temporary Living Expenses), or if a portion is used as a home office (special rules apply to both cases). Also, may be deductible if maintained for the sole purpose of going to school if your education expenses qualify for the business deduction.

Clothing that is adaptable to everyday wear (this includes suits, evening wear, etc.).

Commuting costs (subways and rail fares, and vehicle use including tolls, gasoline, and parking). Exception if qualified as being away from home on business or as part of Temporary Living Expenses.

Dues to country clubs, golf and athletic clubs, and airline and hotel clubs.

Home phone line.

Job hunting expenses if you’re looking for your first job, or changing professions.

Dry cleaning and laundry (unless you’re on a business trip).

Legal fees and closing costs involved in purchasing a property.

Fees for taking an exam to qualify you in a profession (e.g., Bar Exam, GRE, etc.)

Immigration visa expenses, such as for obtaining a Green Card or H-1B visa.

Moving expenses that were not associated with your job and were less than 50 miles.

Moving expenses if you are claiming temporary living expenses.

Meals, unless for business meetings, or while away from home on business. Also, allowable as part of Temporary Living Expenses.

Lunch on the job.

Personal expenses, such as grooming and maintenance (gym membership) unless they are directly related to your business (e.g., models, actors).

Any other personal expenses for which there is no provision for a deduction in the Tax Code.

Interest on personal loans.

Support of family members, unless they qualify as your dependents.

Personal vacations.

Cosmetic surgery to improve personal appearance

Contributions made to individuals or foreign charities.

Student loan interest if adjusted gross income is greater than $75,000 (single) or $150,000 (married).

Student loan principal.

Miscellaneous Schedule A Expenses

Real Estate Expenses

Mortgage interest

Mortgage prepayment penalties

Penalties of early withdrawals

Points on principal residence financing

Real estate taxes

Auto Registration or Licensing Fees (varies by state)

Charitable contributions (cash and non-cash) made to qualified U.S. charities.

Air conditioner necessary for relief from allergies or other respiratory problems

Alcoholism treatment

Analysis

Artificial limbs

Artificial teeth

Birth control pills prescribed by a doctor

Braille books and magazines used by a visually-impaired person

A clarinet and lessons to treat the improper alignment of a child’s upper and lower teeth

Contact lenses

Cosmetic surgery to improve a deformity.

Dental fees and supplies.

Diet, special. When prescribed by a doctor, you can deduct the extra cost of purchasing special food to alleviate a specific medical condition.

Doctor or physician expenses.

Drug addiction treatment.

Elastic hosiery to treat blood circulation problems.

Exercise program if recommended by doctor to treat a specific condition.

Extra rent/utilities for a larger apartment required in order to provide space for a nurse/attendant.

Eye surgery, when it is not for cosmetic purposes only.

Fertility treatment: Limited to procedures such as in vitro fertilization (including temporary storage of eggs or sperm) and surgery, including an operation to reverse prior surgery that prevented the person operated on from having children.

Guide dog

Hospital care

Household help for nursing care services only.

Insurance premiums for medical care coverage.

Laboratory fees.

Lead-based paint removal where a child has or had lead poisoning.

Legal fees paid to authorize treatment for mental illness.

Lifetime care advance payments.

Lodging expenses while away from home to receive medical care in a hospital or medical facility.

Long-term care insurance and long term care expenses (with limitations).

Mattresses and boards bought specifically to alleviate an arthritic condition.

Medical conference admission costs and travel expenses for a chronically ill person or a parent of a chronically ill child to learn about new medical treatments.

Medicines and prescription drugs.

Nursing care.

Nursing home expenses if the there to obtain medical care.

Oxygen and oxygen equipment.

Reclining chair bought on a doctor’s advice by a person with a cardiac condition.

Special education tuition of mentally impaired or physically disabled person.

Smoking cessation programs.

Swimming costs, if therapeutic and prescribed by a physician.

Telephone cost, repair and equipment for a hearing-impaired person.

Television equipment to display the audio part of a TV program for hearing-impaired persons.

Transplants of an organ, but not hair transplants.

Transportation costs for obtaining medical care.

Travel expenses for parents visiting their child in a special school for children with drug problems, where the visits are part of the medical treatment.

Weight loss program, if it is recommended by a doctor to treat a specific medical condition or to cure any specific ailment or disease.

Whirlpool baths prescribed by a doctor.

Wig for the mental health of a patient who lost his or her hair due to a disease.

X-ray services.

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